Natural disasters to raise insurance premiums

Whether you’ve been worried about more hailstorms in Calgary, hurricanes in the Maritimes or sewer backups in Toronto, you might want to steady yourself for something almost as scary: insurance premium increases.

“Premiums have been creeping up a bit,” says Chris Kissell, senior managing editor of Insurance.com

“But this year, in terms of disasters, it’s a pretty bad situation,” says Mr. Kissell, less than a week after Hurricane Irene caused damage of US$3-billion to US$6-billion in the United States.

Post-tropical storm Irene also soaked Quebec and the Maritimes, knocking out power to 248,500 Quebec homes early Sunday.

Environment Canada said Ontario hasn’t seen a storm that powerful since 1996.

Mr. Kissell says reinsurers, the companies that back the risk of insurance companies, have already indicated they will raise rates in 2012. And that almost guarantees your insurer will pass on an increase to you.

“The anticipation is that rates will be going up pretty much across the board,” Mr. Kissell says. “There is no question [the increases are] legitimate. But will they go beyond that and take advantage of the situation [to raise rates even more]? It’s hard to say.”

There are two types of homeowner insurance policies in Canada, basic and what is called all perils. Basic will cover 15 to 20 risks, such as fire, smoke and wind damage. An all-perils policy covers everything but what is specifically excluded.

Henry Blumenthal, vice-president and chief underwriter of TD Insurance, declined to speculate about rates for 2012, but says there is a sense in the industry that natural disasters are more frequent.

“There was a [hailstorm] last summer in Alberta which was the largest single expensive loss in the history of the home-insurance system in the province,” Mr. Blumenthal says about a storm that caused $400-million in damage. “Environmentalists will tell you clearly we see more large events happening and some of them are more significant than before. [Hurricane] Irene is just one example.”

One way to reduce your premium costs is to avoid claims.

“People benefit from what we call a claims-free discount,” Mr. Blumenthal says. “It’s not automatic you will see an increase [after a claim].”

Unlike auto insurance, home insurance is not regulated in any province and is not mandatory. However, most homeowners have it — in part because few banks will issue you a mortgage unless your property is insured.

Mr. Blumenthal says consumers should contact their insurer and discuss the ramifications of making a claim on their premiums. He acknowledges too many claims can get you blacklisted.

“Some companies have what is called an eligibility rule which says if you’ve had three claims in five years you do not qualify for insurance,” he says.

Water damage is probably the No. 1 worry over coverage. In cases in which sewers have backed up on multiple occasions, consumers have been denied claims.

“It’s best to talk to your insurance company before something happens to see if you are covered. You also want to do everything you can to protect your home,” Mr. Blumenthal says about trying to avoid claims and becoming uninsurable.

Lawyer Jayson Brian Schwarz says climate changes have affected the relationship between consumers and insurers with claims on the rise.

“Anybody buying an insurance policy cannot rely on — as they once did — just being covered for everything,” he says. “They need to take the time to make inquiries of their agent as to what they are not covered for.”